All posts tagged Food

Food prices are surging again, with corn trading up its daily limit and oats, soybeans and wheat also sharply higher.

The U.S. Department of Agriculture provided a lower-than-expected estimate of corn and soybean inventories and raised estimates for corn, wheat and cotton planting acreage this year, but lowered it for soybeans. Sal Gilbertie, lead portfolio manager of the Teucrium Corn Fund described the inventory levels to Dow Jones as “terrifyingly low.”

On the Chicago Board of Trade, corn is up 4.5%, Oats is up 5.4%, Soybeans are up 2.9% and Wheat is up 4.6%, according to FactSet. Cotton rose 2.3%.

Fertilizer companies are trading higher. CF Industries up almost 5%, Potash Corp. up about 2% and Mosaic is flat after uneven earnings this morning. Among other ag-related shares, Monsanto and Deere are both up more than 2%.

Most agricultural commodities are marginally lower today, with the exception of soybeans, but that hasn’t stopped Morgan Stanley from getting bullish on foodstuffs.

Dow Jones reports that Morgan Stanley believes corn and soybean prices need to jump even more – they recently hit two-and-a-half-year highs – to entice farmers to plant more. The investment bank said it initiated a long position in November 2011 soybean futures to go along with its lon December 2011 corn futures position.

The USDA is scheduled to issue it plantings estimate report tomorrow. Earlier this year, Deere forecast that farmers would plant more corn and soybeans this year.

Analysts over at J.P. Morgan cut their rating on Kraft to “neutral” from “overweight,” citing lackluster U.S. growth. Analyst Terry Bivens writes of Kraft’s North America unit:

While the organic growth rate of the unit has improved, we believe Kraft is challenged to achieve price realization – a must in the current environment – without sacrificing market share and product velocities. Our analysis suggests the unit will be challenged this year to produce the sort of growth that will help drive earnings and share price.

Translation: Kraft is in between a rock and a hard place. It has to try to keep prices high to pass along the increases in commodity costs it is dealing with. But keeping those prices up will likely cost it customers. The downgrade isn’t hitting the shares too hard. The stock is off 0.6% at last glance. Year-to-date Kraft is down 2.3%, compared to the 3.3% advance for the S&P 500.

Food prices are down today, but expectations remain high that they will continue to move upward in the months ahead.

In February, the UN agriculture watchdog reported that food prices were at record levels. Over the past year, wheat prices have risen 74% and corn has surged 87% amid concerns about lack of adequate supply.

Deutsche Bank, in a new report on food prices today, offers little prospect of any near-term relief. “Globalization and urbanization are contributing to a switch of dietary preferences towards Western diets, including foods requiring intensive use of resources (water, energy and grains). The consumption of animal proteins (meat) is rising fast in developing countries.”

On the plus side, Deutsche predicts that food prices are “likely to start falling later in 2011.” On the negative side, Deutsche expects food prices to remain high for the rest of the decade.

Other highlights from the report:

Food prices will continue to push headline inflation figures higher in emerging markets since consumers in those markets spend more than 50% of their income on food.

Higher oil prices are driving more food production (corn, soybeans) into energy production, exacerbating the pressure on food prices.

Recent spikes in corn and soybeans could last until the fall, based on historical, seasonal price trends.

Framers in the developed world stand to benefit. The U.S. Department of Agriculture forecasts a 20% income jump for U.S. farmers in 2011.

After falling sharply yesterday, food commodities are down again today, with the exception of soy beans, which are up marginally. Corn, oats and rough rice are down 2% to 3%, wheat is down more than 1%.

The fall in food commodities is attributable in part to a shift in hot money. Rather than chase the food commodities higher, some of that money has moved decisively into the oil markets, which are bigger and more liquid.

With food prices dropping, food companies could get a boost. Yesterday, General Mills, Kraft Foods and Kellogg managed solid sessions despite the widespread sell-off. If food prices continue to drop, even laggards such as ConAgra and Sara Lee could benefit.

Falling food prices could also have an impact on the civil unrest sweeping the Middle East and North Africa. Much of the unrest has stemmed from sharp increases in the price of staple foods. But it will take a more sustained downturn in prices before any relief is visible. And the hot money, fueled by record low short-term rates in the U.S. and Europe could return to the food sector if the chaos ebbs.

Investors are playing pretty intense defense today with the Dow Jones Industrial Average down 1.4% and the Nasdaq Composite down an even sharper 2.5% amid concerns about turmoil in MENA.

So, how to play defense in a sea of red? As the old saw goes: People gotta eat. And that’s where investor dollars are focused today. Among the S&P 500, fewer than 30 stocks are in the plus column, according to the latest information from FactSet. And highly representative in that crowd are the food stocks.

In the land of L’Etoile du Nord, two food companies are doing well. Hormel (Spam!) reported earnings this morning that easily topped analysts’ estimates and its stock is up more than 2%. And General Mills, which reaffirmed its 2011 outlook earlier today and had a nice Daytona 500, is also up about 2%.

Other food stocks gaining include Kraft Foods, one of three of the DJIA 30 components in the green — the other two are big oil stocks ExxonMobil and Chevron.

Also on the up: Kellogg, Heinz, Tyson Foods, Kroger and Hershey.

Of course, once the flurry in MENA simmers down, investors might start to focus on another food reality: input prices (grain, corn, etc.) are rising and pass-through on prices remains a challenge. Food may look good today, but may find things tougher tomorrow. Then again, food commodity prices, while high, are down across the board today.

The Federal Reserve’s Beige Book released this afternoon underscored soft price pressures throughout the country.

And yet. Famously non-core items such as energy and food are looking inflationish. Oil prices rose for a third-straight day, gaining 0.82% to $91.86 a barrel, the highest close since Oct. 2008. The mucky stuff has gained 4.35% in the past three days.

Food? Up, up and away. The U.S. Department of Agriculture made what Dow Jones termed “another deep cut” in its outlook for global supplies. In Chicago, corn and soybean futures closed at more than two-year highs, briefly trading “limit up” meaning prices were momentarily frozen before easing a bit. Wheat and corn prices are also higher.

Food inflation is more acute in other countries, notably China, but the prices do seem to be moving fairly steadily in one direction. Farming-related shares, perhaps sensing a big growing season, traded higher. CF Industries, which makes fertilizer, rose 5%, John Deere, a maker of tractors, added 2.1%.

Away from food and oil, metals also gained today, with Copper and Silver modestly higher.

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